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Interest Rates and Present Values

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Calculating Interest Rates (Example)

How do you determine the annual interest rate?

Present Values Future Values Time Period

100 115.76 3-years

200 262.16 4-years

100 110.41 5-years

Coca-Cola (Example)

In 1995 coca-cola enterprisees neede to borrow about a quater of a billion dollars for 25-years. It did so by selling IOUs, each of which simply promised to pay the holder $1,000 at the end of 25-years. The market interest at the time was 8.53-percent. How much would you have been prepared to pay for one of the company's IOUs?

PV=$1,000 X ___1_____

Can you please explain this equation step by step? Also, were does the 25 fit in??

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Solution Preview

Please see the answer and explanantions in the attached file

Great, but I still need to know how you utilize the 25 ...

Solution Summary

The solution explains how to calculate the implied interest rate given the present value, future value and the time period